Now that activist investor Bill Ackman is getting his way with Canadian Pacific Railway Ltd., the hard work begins: transforming the perennial underperforming railway into a model of efficiency and profitability.

The question is, should investors stick around to see the turnaround unfold?

The stock market is already confident that Mr. Ackman's plan for CP – starting with bringing in new directors and top management – will deliver results.

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Ever since Mr. Ackman's Pershing Square Capital Management disclosed last October that it had become the company's biggest shareholder, CP shares have surged 24 per cent – three times the gain of rival Canadian National Railway Co. over the same period.

This year, CP is by far North America's best-performing railway stock.

That naturally leads to the suspicion that the good news has already been built into the share price, leaving little room for additional gains even if the turnaround succeeds.

The shares have been treading water for most of the past two months, and the news that CP's chief executive, chairman and four directors have resigned – opening the door to Mr. Ackman's replacements – seems to have done little to push the share price out of its recent trading range.

That's the stock market's way of saying: Now what?

Mr. Ackman has a lot of skin in the game here, with Pershing Square holding more than a 14-per- cent stake in CP. Clearly, he sees more upside potential in the railway, so the temptation to tag along with this driven investor is strong.

However, like most successful investors, his track record is anything but perfect.

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He grabbed a big stake in U.S. retailer J.C. Penney Co. Inc. in October, 2010. Investors sensed that big things were in the works and were rewarded when Ron Johnson, the former brainchild of Apple Inc.'s retail strategy, was brought on as J.C. Penney's new chief executive.

Sound familiar so far? Hunter Harrison, who quarterbacked CN to several winning years before stepping into retirement, is Mr. Ackman's top candidate to lead CP now that the top job is vacant.

But the experience of J.C. Penney has been anything but pleasant for investors. The share price reflected early hopes, rising 33 per cent by February, 2012. Since then, the shares have slumped 39 per cent, partly on the company's surprisingly large first quarter loss and its decision to suspend its dividend. It's down 19 per cent since Mr. Ackman's holdings were disclosed.

In other words, tagging along on that stock hasn't worked out for investors so far.

To be sure, analysts are relatively upbeat on CP, even as they acknowledge that the shares are richly valued.

The bullish argument is based on the belief that the new leadership is infinitely better than the old leadership and will improve operating efficiencies, lift profit margins and drive earnings. These long-term improvements, the thinking goes, have not been factored into the share price.

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But the details on how to execute these improvements have been vague so far, and do not seem to entail anything terribly innovative beyond un-retiring Mr. Harrison, perhaps co-operating with its rival on some rail corridors and invigorating the corporate culture.

As Mr. Ackman put it recently, new leadership must "transform [CP's]culture of excuses into a culture of execution, performance and accountability."

It sounds good. But anyone who invests in the stock at this point is pinning their hopes on new leadership delivering quickly on Mr. Ackman's demands. Buyers must ignore the risk of an economic slump hitting the economically cyclical railway sector.

CP looked attractive as an unloved laggard because the downside was limited. Now, with expectations so high, the upside is hard to see.